John Perry (Sligo-North Leitrim, Fine Gael)

I am pleased to take the opportunity to speak on matters relating to the high cost of fuel on behalf of the Minister for Finance. In this regard, Ireland, like other countries, has experienced a significant increase in the cost of petrol and auto-diesel in recent years. The increase in fuel prices is an international phenomenon. Fuel prices are driven by a number of factors, including the price of oil on international markets, exchange rates, production and refining costs. The rise in oil prices in recent periods reflected additional factors such as geopolitical uncertainty in northern Africa and the Middle East, with potential supply disruptions. For example, the average price of auto-diesel in 2010 was €1.23 per litre compared to today's average price of €1.61 per litre, a difference of 38 cents per litre. During this period increases in excise in the budget last year and carbon tax in the budget for this year raised excise on auto-diesel by just over 3.5 cents per litre, VAT inclusive. The increase in the price of auto-diesel, therefore, is largely due to external factors outside the Government's control.

The excise rates, including the carbon charge, in Ireland on motor fuels are 58.8 cent on a litre of petrol and 47.9 cent on a litre of auto-diesel. When VAT is taken into account, the total Exchequer take as a percentage of the total price is 53.7% and 48.5%, respectively, based on current average prices of €1.68 and €1.61 per litre for petrol and auto-diesel respectively. While the tax increases are within the control of the Government, these increases must be seen in the context of very difficult budgetary decisions. Nevertheless, it should be noted that our rates remain lower than those of many of our main trading partners and significantly lower than those of our nearest neighbour, Britain. The price of auto-diesel is around 20 cents per litre cheaper in the State compared to that in Britain, while the price of petrol is around 10 cents per litre cheaper.

The Exchequer yield from excise, as excise is set at a nominal amount, does not increase as the price of fuels increase. On the other hand, the yield from VAT per litre of fuel, as VAT is set as a percentage of the price, increases as the price of fuels increase. Accordingly, any increase in the tax take as a consequence of increasing fuel prices is confined to VAT. It should also be noted that businesses are, of course, entitled to reclaim VAT incurred on their business inputs, including VAT incurred on fuel. For example, VAT incurred on auto-diesel and marked gas oil, or green diesel as it commonly known, used in the course of business is a deductible credit for business in the Irish VAT system. VAT on petrol cannot be deducted or reclaimed.

Given the current pressure on the public finances, there are no plans for temporary taxation adjustments, as to do so could lead to significant costs to the Exchequer. In the Minister for Finance's Budget Statement in December he pointed out that the programme for Government stated there would be no increases in income tax. The Government carefully considered the options open to it, given our commitments under the EU-IMF programme. Indirect taxes have a lower impact on economic growth and jobs. The decision to increase the carbon tax by €5 per tonne meant a lower increase across all fuels than if an increase had been applied just to the excise duties on petrol and diesel.

Rising costs of fuel are an international phenomenon. In 2005 and again in 2008, when oil prices last spiked, the matter was considered at ECOFIN. Given impact of high oil prices on growth rates, it considered an appropriate policy response to the price increase at its meeting of 3 June 2008. It confirmed the agreement reached in Manchester in 2005 that the discretionary fiscal and other policy interventions that had prevented the necessary adjustments by economic agencies should be avoided. On 15 March 2011 the issue of rising fuel prices was briefly discussed by EU Finance Ministers and they reconfirmed the approach taken in 2005 and 2008.

See this speech in context